How does the economy really work? (Banks, loans, value, economics)

[Tom H.]

If you have ten apples and I have ten gallons of milk, you will value your tenth apple less than your first apple, I value my tenth gallon of milk less, so we exchange apple for milk and we each get something we value more (my first apple!), in that process we have created profit.

That's the basis for the whole thing.

Debt is the wrong word. The driver of wealth creation is capital investment, which comes from savings.

Capital investment funded by inflation is a wealth transfer, the debased money doesn't magically have value, it steals value from other people's savings.

Productive value creation and voluntary exchange is what makes an economy work.

 

[Deleted78083]

The mistake most people make is to focus on money. It's wrong. You should be focusing on production instead.

Imagine a village with a baker, a butcher, and a tailor.

They each produce their own goods (bread, steak, and suits). That's the economy. The strength of it depends on whether they produce a lot or not and on whether the goods are highly sought after or not.

If the baker only produces one piece of bread, the butcher one steak, the tailor one suit, the whole village will be poor and all of the goods will be expensive cuz demand will be higher than production.

If the baker produces three pieces of bread per day, the butcher three steaks, and the tailor three suits, then the village will be rich because everyone will exchange their good with the others' goods and they'll enjoy opulence.

Money is the neutral value of exchange you use when you create wealth that others consume. The more others consume what you produce, the more money you get.


Where does money come from?

At the beginning:

Baker's inventory: 3 breads, will eat one and sell two
Bucther's inventory: 3 steaks, will eat one and sell two
Tailor's inventory: 3 suits, will wear one and sell two

How will these people exchange their goods?

With money.

Money is borrowed from the central bank. Le's say each good cost 1 euros. Each of our villagers will borrow 2 euros to buy the two goods from the other two villagers.

The baker: buys one suit for one euro, and one steak for one euro. Receives one euro for his bread from the butcher, and one euro from the tailor.

The butcher: buys one bread for one euro, one suit for one euro, and receives one euro from the baker for his steak, and one from the tailor.

The tailor: same thing.


Now that our villagers have bought and sold their goods, they go back to the central bank to give back the two euros they each borrowed.

This explains why fundamentally, all money is debt since all money is de facto borrowed. Money is meant to temporarily enable individuals to exchange their own production against a neutral value they can use to go buy other stuff later on. Money fundamentally prevents people from bartering.

That, in a nutshell, is how the economy works. This is why Jeff Bezos encourages you to produce more than you consume - because he understands how the economy works and that if everyone produced more than they consumed, no one would be poor.

Congratulations! You now have a bsc in economics!

 

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[Antifragile]

So I'm trying to formulate my idea of how the economy works and would like others to think about this too.

New money is created via debt - yes or no?

Banks lend out money, often in the form of either a business loan or a mortgage.

So let's say that I get a business loan and I hire 20 people. Those 20 people each get mortgages. Their work pays down my business loan over time, and in return I pay them wages or salaries, which they use to pay down their mortgages over time.

This would eventually cancel out my debt and their debt. New value and new wealth was created! ...Right?

Is that true? Can it really work that way across the board, or is more debt always necessary?

I'm trying to figure out how this all fits together intuitively.

Honestly, @JScott ... your expertise would be great for this question.

Have you read or watched Ray Dalio?

View: https://youtu.be/PHe0bXAIuk0


https://economicprinciples.org/down...hine_works__leveragings_and_deleveragings.pdf

 

[Kevin88660]

I've heard this a lot, and the question I always come back to is - who owns the Fed?

All the Rothschild conspiracy stuff aside, this is a very convoluted and backwards banking setup, IMO.

It would appear we are all slaves to the Federal Reserve, at least on paper.

Central banks are in theory privately owned but in practice publicly controlled for public interest.

It is basically a cartel in collaboration with the power of the state, and the public accepted it because it did offer a better consumer experience than the chaotic past of “free market”.

Before central bank in place you have thousand of banks running the lending business. Basically they have gold deposit reserves and create credit (which is paper notes that promise to pay physical gold). When time is good everyone enjoyed the convenience of using paper and credit expansion. In crisis everyone rushed to redeem their papers for real gold. And many banks suffered a bank run a collapsed.

The issue is banks are in competition against one another. When bank A is in trouble bank B will not help it by lending its excess gold, also in part of fearing the bank run as well. What happens when Bank A goes down. Bank B customer are going to ask themselves the question “Are my golds safe”. Bank B eventually go down as well.

So after the banking panic in the early 20th century the more affluent bankers led by JP morgan decided to put a stop on this mess. Because if people do not trust banks they are just going to put their gold at home. And the industry can never grow. So the central bank is a collective insurance scheme that promise to “act as lender of last resort”. The banking industry is special is that while everyone competes with one another everyone needs to also collaborate with one another to ensure the survival of the industry as a whole.

You can criticise central banking for all you want but it restored the confidence people have. Today even if you know that the bank do not own the real paper money backing your million dollar deposit account but you wont freak out to withdraw them and put it under the safe.

Eventually the world moved towards central banking because the state wants to have the central bank to back it in time of emergency. In theory some central banks are “privately owned” and the private owners enjoy a share of dividends, the appointment of key holders are often done by the state official. The government grants the banking industry power in returns that in times of crisis like war, it can get the financial support through massive inflation. The state is a war machine and survival is its higher political objective.

Some people subscribe to the “bankers control everything” conspiracy but it is obvious that state power and its bureaucracy is the higher power. There were decades (1940-1970 in U.S.) when bankers are not popular and government imposed heavy rules against them on banning business related to leverage and speculation, also due to politicians who do so to reflect public opinion. And in recent years Uncle Sam is going oversea going after Swiss bankers and Swiss government and pressure them into submission if they were suspects of helping Americans to hide their wealth oversea for tax dodging.

 

[socaldude]

Económics is a notoriously divided field. I’ve read tons of books and I’m no expert. But I’ve come up with key ideas that help me bypass the complexity of an economy.

1. It’s all about who owns, controls and allocates the resources.(You want enterprising men and woman to allocate the resources, not the schmucks over at the government).

2. Wealth gravitates towards those that can optimize utility and efficiency the best.

3. Technology is the most powerful driver of productivity. Economists call it “capital”(No, not like the capital in finance).

4. Money is an abstract and extrinsic unit of exchange. Fiat money is efficient BUT only if the entities that control it are ethical and responsible.(No, the fed is not responsible)

5. Supply and demand is simply the intersect of utility and scarcity.

New money is created via debt - yes or no?

Yes, Banks control all our money. That’s why there is no such thing as bank runs anymore because they don’t need me or you. They got their buddies at the Fed to loan them the money. I think Citi bank owns most of the shares over at the Federal Reserve bank of New York.

 

[Kak]

If you have ten apples and I have ten gallons of milk, you will value your tenth apple less than your first apple, I value my tenth gallon of milk less, so we exchange apple for milk and we each get something we value more (my first apple!), in that process we have created profit.

That's the basis for the whole thing.

Debt is the wrong word. The driver of wealth creation is capital investment, which comes from savings.

Capital investment funded by inflation is a wealth transfer, the debased money doesn't magically have value, it steals value from other people's savings.

Productive value creation and voluntary exchange is what makes an economy work.

Yes. This is great.

Dollars in circulation are “backed” (essentially) by the trade value everyone has universally accepted.

Newly minted dollars are only “backed” by yesterday’s accepted value, and as days go by that becomes a problem. There is zero commerce, capital investment, or exchange behind that dollar.

Just like a stock doing a split. If the market cap is 500B, and you split the stock, doubling the shares, the market cap is probably up a little because now people are moving some paper, so let’s say 550B. But it is stimulated and nothing about the management, or profitably of the company have changed.

Our total productivity as an economy can be looked at like the market cap. They stimulate it with new dollars and pat themselves on the back while they rob the buying power of existing earners and people with dollar denominated savings, and bonds.

It would be akin to me taking an investment from someone of 10% in my company, and then unilaterally deciding to just quadrupole the outstanding shares and issue them to myself. Now they own 2.5%.

We are like metaphorical shareholders in the US economy, by force. The shares, dollars, are always headed down. We can mitigate or exceed that loss by owning stock, assets foreign and domestic, and commodities.

Henery Hazlitt’s Economics in One Lesson is very good. I saw another person mention Sowell...

Sowell is a great economist, but he is Chicago Theory and Hazlitt is Austrian. They are both capitalists that disagree on the role of the fed. They’ll both nail supply and demand micro economics perfectly. And, while I love Thomas Sowell, and Milton Friedman for that matter, I prefer the Austrian take.

The Mises Institute has everything you need to understand the economy. Much of it for free. Check out podcasts from Bob Murphy as well.

 

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[Black_Dragon43]

This misunderstanding all stems from the line of thinking that money is value. But money isn’t value, it’s just a means of exchange. If we were all given $100,000 by the government, but all production stopped, then we would all starve. And having more money wouldn’t prevent that. Can’t eat ehm moneyes!

Now trade can facilitate win-win exchanges which leads to higher overall production and therefore more wealth. But remember, it’s the production that is ultimately the wealth and value of a society, not the money.

If we have just 5 gold coins, and we’re 3 people, that might be enough to facilitate trade between us. - you sell me 1 sheep for 1 coin, I go buy a pig for that coin, etc. @Tom H. explained it very well above, the whole marginal utility thing.

But now imagine we’re 10,000 people. Obviously production is much higher. The money supply of 5 coins is no longer enough to facilitate smooth trading. So we need to mint some more, hence why small inflation is preferred by governments. Printing some more in this case makes trade easier, BUT devalues/discourages savings. (ofc things get a bit more complicated due to credit, but that's the basic idea)

Now it seems we’re stuck between two evils... ineffective trading due to a small money supply that doesnt keep up with production OR inflation. Now all this trading difficulty could be solved if we could subdivide the initial 5 coins infinitely. Then we could go on trading just as well, without any inflation. Hence crypto

 

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[Tom H.]

Yes, I’ve seen this.

I know what value is, too @Tom H. Most of the people here probably already know this. A lot of the comments here are explaining something more basic.

But the question is really about how more money enters the system and what it means. Obviously money is just a means of exchange - that’s rudimentary.

Obviously money is not value - value can be many things. That is also rudimentary.

The real question is how the banking, lending, and government work in reality.

Money supply is created via fractional reserve banking, meaning I lend out the same dollar ten times, 10x-ing the money supply.

The Fed acquires assets (other people's debt) and pays for them with money created out of thin air. The interest and principe are then paid back as you described, so the Fed makes money off of lending money that they created from nothing.

The system does not work, this is easily seen by charting the value of the dollar since 1913 (or similarly in any central banking system). When the Fed creates money they are stealing value from other people's savings.

Another way it doesn't work: the system diverts investment into less productive projects and it distorts prices, sending confusing signals to entrepreneurs, who then make bad investments. This is the cause of business cycles.

If the system worked you could just save cash instead of investing in stocks, etc. And we wouldn't have boom-bust business cycles.

The system works if you are a banker and you want to steal value without being productive.

 

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[Kevin88660]

There are two ways you can approach this. You can buy a used college textbook on monetary policy and learn all the money supply graphs and statistics on how printing money is great. Also, Funny how Woodrow Wilson was a college professor.

OR

You can learn all of this from what I call the “anti-brainwash” perspective. In other words you reject everything academia says and look at things from a fresh perspective. In that case watch the 1996 documentary “Money Masters” by Bill Still.

I already researched all of this. And my views align more with the second.

Banks create all our money and the loan it out through collateralized lending so some other schmuck takes the risk and they incur no opportunity-cost. Oh, and you don’t get “free money” loans if you are not in “the club” of private bankers.

Oh, and the federal reserve system is cleverly designed so that if shit hits the fan, they can blame someone else for it. Hyperinflation? What are you talking about?

Even the mainstream academics debate about effect of money printing. You also have the unorthodox schools like Austrian and post-keynesian/minsky school of thought.

The new classical school (chicago school) simply hold a money neutrality view that money is just a tool for bartering.

The neoclassical (old keynesian)school views money as largely neutral but not entirely neutral. Having some inflation is a good things because lenders rather than savers are the engines of the economy. But when interest gets to near zero monetary policy become useless. The lower of cost of borrowing can no longer encourage business expansion or consumer spending. Hence you need government to take the role of deficit spending. This is what they call a liquidity trap at zero percent. Major proponent of this school of thought is Paul Krugman.

The monetarist school (Milton Friedman and his disciple Ben Bernanke) believes that during normal time moderate inflation is good. But during a crisis aggressive monetary stimulus is needed to ensure there is no liquidity crisis, which leads to massive bankruptcy. Liquidity trap at zero percent is nonsense because the central bank can push negative interest rate and buy up assets directly in the market. When your financial assets hold value market participants are unlikely to liquidate and continue the vicious cycle. 2008 was the example when banks toxic assets are recapitalized, they are not in pressure to call back loans for self preservation. There is less pressure on the entire cashflow chain in the real economy.

The Austrian school will say its the easy money and low interest during the boom years thats the problem which leads to bad investment and bad debt, and we should do nothing during the crisis because this is the time to detox and let bankruptcy take its course. Peter schiff is a proponent of this.

The post keynesian/minsky school will say it is not about whether u should print money but how you should print money. The real problem is private debt is too high (business and consumers) relative to their ability to make an income. So when you recapitalize banks through QE the banks look at the business and individuals and say “These people and business are near broke and I dun dare to lend them money”. Because when private banks create a debt/loan, they create liability for themselves. If they lend the credit to a businessman and its business man spent the credit on a supplier and then went bankrupt, now the bank owes credit to the supplier. So what QE is doing is making banks sitting on cash doing nothing. It makes stock market billionaires richer. And the stock market billionaire say “wow let me cash out to invest in real business operations. But gee.. the people are broke..the consumers have high debt and are broke and can only shop at walmart..I cannot make money in real business and I better reinvest back into the stock market”. Thats why we have rocket high inflation in the asset prices but not much inflation (some here here will say otherwise) and stimulus in real business activity so far despite having QE. And the right solution is to have “People’s QE”-mailing cheque to average people. Steve keen the professor from Australia is a proponent for that, and ironically after covid the governments are doing this, not because they adopted his opinion but it seems to have no choice when you have to put people at home not working.

 

[Guest-5ty5s4]

So I'm trying to formulate my idea of how the economy works and would like others to think about this too.

New money is created via debt - yes or no?

Banks lend out money, often in the form of either a business loan or a mortgage.

So let's say that I get a business loan and I hire 20 people. Those 20 people each get mortgages. Their work pays down my business loan over time, and in return I pay them wages or salaries, which they use to pay down their mortgages over time.

This would eventually cancel out my debt and their debt. New value and new wealth was created! ...Right?

Is that true? Can it really work that way across the board, or is more debt always necessary?

I'm trying to figure out how this all fits together intuitively.

Honestly, @JScott ... your expertise would be great for this question.

edit: guys...I know what value is and that it isn’t money. I’m asking people how the government, banks, etc actually function. I’m not asking for people to tell me my own ideology! I am already pro-capitalism and value

 

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[MJ DeMarco]

Why don't you make this it's own thread? Makes for a good discussion. A lot of people don't visit the rant thread...

Done.

 

[Kak]

Honestly, JScott ... your expertise would be great for this question.

Don’t call JScott (see, don’t use the tag) out of hibernation unless you want the thread to turn into an argument for argument’s sake.

Just because he is the loudest and most aggressive guy in the room, doesn’t mean he is somehow uniquely qualified. He uniquely qualifies himself for every discussion he inserts himself into.

His problem is he doesn’t understand metaphorical discussion and tends to argue with anything that isn’t super literal and source cited out of a government approved, bootlicker, Stockholm syndrome, handbook.

I know, I know, I should be super impressed with his glory days because he tells me to. M&A and Microsoft, wow, he did what he was told to do and was paid for it. Damn. Innovative. Amazingly cutting edge. Time Magazine should really call him about a cover, if he has time for them of course.

And let’s not forget real estate! No one ever invests in real estate! Doors! Lots of doors! Let’s all massage his, undoubtedly massive, balls for it (yet again) when he shows up here to enlighten us plebes in all of his “expertises.”

 

[Kak]

 

[Kak]

@thechosen1 check out Ludwig Von Mises’ writings on “malinvestment” if you are interested in why we have boom/bust business cycles.

What you seem to be asking is how fractional reserve banking works. Start there and branch out.

 

[Black_Dragon43]

Right so, the debts cancel out and are slowly paid off by each side of the hierarchy, right?

So does that mean this system actually...works? I mean, issuing debt as a way to "keep up" with the value creation? But it does seem to mostly just inflate asset prices because that's what the intelligent people use debt for.

Ok, so let's take a simpler scenario. I have a connection of mine who needs 1000 parts of whatever, and I have the know-how of how to produce them. Unfortunately, I don't have the cash. You on the other hand already have the raw materials I need. So I tell you, look, I don't have the cash to pay you, but give me these raw materials on credit (read, on TRUST), and I will pay you more than you want right now for allowing me to pay you later.

Now this simple transaction based on credit enables me to produce the 1000 parts, and, down the line, my connection to produce the 1000 cars he needed the parts for. Thus we're all 1000 cars richer. My debt to you is paid out of those 1000 cars. So credit/debt is repaid/settled out of increased production in the future. Without the credit/debit though, there would be no increase in productivity. And without the increase in productivity, there would be no way to repay the debt.

So yes, credit is a way to increase productivity faster and "inject" virtual money where the system needs it to facilitate the sort of exchanges that lead to greater productivity.

 

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[Speculatooor]

I have just read Basic Economics by Thomas Sowell, and really recommend it.

 

[Kak]

In all reality, I must reiterate, the Mises Institute is really a gold mine for this type of stuff. It won’t be summed up in a thread. There will be days and days of multifaceted learning required to really get even a working understanding of our system.

I actually like Mises.org so much that I do donate to them now.

Mises Institute

With the help of our extraordinary supporters, the Mises Institute is the world's leading supporter of the ideas of liberty and the Austrian School of

mises.org

 

[WJK]

Our monetary system has been developing over time from a bartering system. My grandfather fitted glasses for his whole little corner of the world. He had his regular office in our home town. He also took his tools and went around to the different neighboring towns where he set up shop on a regular route. He had no set prices. He charged what he thought they could pay. He didn't keep books on who owed him. It was all done on the honor system. And most of it was done by barter. We'd come to their house and there would be a lug of apples, a ham, a mess of fish, or something sitting in his back porch. I'd ask him where it came from. He'd answer, "I don't know. Someone owed me something." He died young. For more than 20 years after his death, people were still bringing stuff to my grandmother to pay their debts for their glasses that he had provided.

I learned a lot from him. I learned that you can go a long way without using paper money. Bartering works. And I learned a lot about using an honor system with those around me.

I learned about paying forward. My grandpa tested every child's eyes in our town when they first started school. If their family couldn't afford any needed glasses, he gave that child a pair so they could go to school. We had a brilliant man who used to visit us after we moved to California. He worked at the military base where they tested rocket engines and he had helped set up Radio Free Europe after WWII. He was an American native man. Every time he visited us, he would tell my little brother and me about how our grandfather gave him his first pair of glasses. His family was too poor to pay for them. He always reminded us that he could not have done anything in his life without those glasses, which allowed him to learn to read. The man's grateful humility combined with my grandfather's generosity has been a guiding light in my life.

Yes, banks borrow $ from the Feds -- which is also a privately owned bank at a lower rate and then lend it out at a higher rate. They sell mortgages to the secondary market after they "generate" them. The secondary market is guaranteed by the Federal Government -- and therefore the taxpayers. And now, a lot of that "paper" is packaged and sold on Wall Street as securities. Yes, as expressed in this thread, it's a carefully managed house of cards. Does anyone remember the 2008 melt-down?

A history lesson... During the Dark Ages in Europe, the church did NOT allow any Christians to collect interest on loaned money. One could only sell what they personally produced. They were not allowed to make a profit on anyone's work or product -- no mark-ups. They could not start a bank nor be a merchant. Jews were not allowed to own land so they didn't farm. Most Christians were farmers( serfs) who worked the land of their overlords on a share-crop basis. Only the Catholic priests were usually literate. Most kings and queens couldn't read or write. Within the Jewish faith, education was highly prized and their children were routinely educated. So the Jewish people started banks that lent money for interest. They became the professionals (doctors, lawyers, etc.) and merchants. And that, in a nutshell, is how the modern banking system was started all those centuries ago. It's also how we came out of the Dark Ages as these church-sponsored rules inflicted on their members were lifted.

 

[Tom H.]

Some very profound insights here.

I had never thought about how this could lead people to make bad investments and/or create business cycles, but that makes perfect sense and we can accurately see that now, for instance:

"Dollars bad!! Must invest more money!!" - that is the name of the game in 2021, and has led to many investments becoming quite overvalued.

Right, exactly.

And the most important price that gets distorted is the price of money (interest rates).

If it's really cheap to borrow money, then I might think building a new high-rise is a good idea. If the price of money was not artificially low, then it would be harder for me to get that money for my project and I'd realize that there actually isn't enough demand for me to take on the risk of the high-interest loan.

Instead, rates are artificially low, so I invest in a construction project, and then it turns out consumers don't have enough money to buy condos in my expensive high-rise, so my project fails, I default on the loan, the whole complex chain reaction unfolds.

>"Dollars bad!! Must invest more money!!" - that is the name of the game in 2021, and has led to many investments becoming quite overvalued.

Yea all these asset bubbles will have to pop. Tesla is not creating 100x more value than it did before, it is just an inflated asset because there are too many dollars with no where to go.

 

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[socaldude]

@Kevin88660

Impressive write ups. Kudos.

 

[Primeperiwinkle]

Hey, I wouldn’t expect a bunch of individualistic, ambitious, maverick-type of people to get along all the time.

Comes with the territory and the mindset!

A person who always “goes along to get along” or “goes with the flow” is unlikely to get rich.

I wasn’t being sarcastic. I really want a section of the forum to be titled ‘Thunderdome’ then when anybody wants to get into it they can just go there and we can vote on who we think won.

 

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[Guest-5ty5s4]

Have you read or watched Ray Dalio?

View: https://youtu.be/PHe0bXAIuk0


https://economicprinciples.org/down...hine_works__leveragings_and_deleveragings.pdf

Yes, I’ve seen this.

I know what value is, too @Tom H. Most of the people here probably already know this. A lot of the comments here are explaining something more basic.

But the question is really about how more money enters the system and what it means. Obviously money is just a means of exchange - that’s rudimentary.

Obviously money is not value - value can be many things. That is also rudimentary.

The real question is how the banking, lending, and government work in reality.

 

[Kak]

View: https://m.youtube.com/watch?v=dvYvQeNeq3A

 

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[WJK]

Wow, you're so triggered by me that someone simply tagging me in a post leads you to to have a half-page melt-down?

Seriously, that's not normal behavior. Seriously.

I was going to make a snarky comment that you should talk about me on your podcast, so both of your listeners could hear about your obsession.

But, seeing how fragile you are, that just seems uncalled for at this point.

Can both of you stop this? Let's talk about ideas and our businesses. Let's help each other. We don't have to agree or think in lock-step. BUT we must respect each other!

 

[Timmy C]

Just randomly clicked on this thread.

So this is awkward AF!

How we all doing today?

 

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[Guest-5ty5s4]

We need a Thunderdome on the forum where ppl can go to argue. I will bring snacks.

Hey, I wouldn’t expect a bunch of individualistic, ambitious, maverick-type of people to get along all the time.

Comes with the territory and the mindset!

A person who always “goes along to get along” or “goes with the flow” is unlikely to get rich.

 

[Primeperiwinkle]

Haha that would be entertaining. I don’t like the idea of someone “winning” an argument though, because in many ways, opinions cannot win or lose. So you fall to who had the best burn or roast. Which is really kind of stupid.

Yea they’d give each other some little bites and get bruised egos, maybe. Meanwhile, keeping a record of who fights who and says what would benefit the circus. We’d be able to see how often somebody acts like a dick, who won’t listen to whom, and who fails to back up their claims. I mean, at the end of the day unless we all share bank accounts it’s he said she said anyways. Might as well make it entertaining.

 

[Guest-5ty5s4]

Agree. This should be a thread considering that the topic itself is quite delicate because of the amount of interepretations based on everyone's ideology.

Already did that.

You’re on the thread buddy!

 

[Timmy C]

But then who would be my drunk forum buddy??!?!??

*but umm if you actually have a problem please get help.

But then who would be my drunk forum buddy??!?!??

*but umm if you actually have a problem please get help.

The only problem I have is that I'm not drunk right now.

 

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[BizyDad]

So I'm trying to formulate my idea of how the economy works and would like others to think about this too.

New money is created via debt - yes or no?

Banks lend out money, often in the form of either a business loan or a mortgage.

So let's say that I get a business loan and I hire 20 people. Those 20 people each get mortgages. Their work pays down my business loan over time, and in return I pay them wages or salaries, which they use to pay down their mortgages over time.

This would eventually cancel out my debt and their debt. New value and new wealth was created! ...Right?

Is that true? Can it really work that way across the board, or is more debt always necessary?

I'm trying to figure out how this all fits together intuitively.

Honestly, @JScott ... your expertise would be great for this question.

Why don't you make this it's own thread? Makes for a good discussion. A lot of people don't visit the rant thread...